How Agiloft Grew 50% Year Over Year and Raised $45M from FTV Capital in Contract Lifecycle Management (Interview with Founder Colin Earl)

Introduction and What Agiloft Does

Nathan Latka

00:00Hey folks, my guest today is Colin Earl. He's a software industry veteran with twenty five years of experience as a developer, product manager and CIO. He worked at IBM, General Electric and three startups before founding Agiloft. They're a leader in contract lifecycle management, and they've been featured many times in the Gartner Magic Quadrant. Colin, are you ready to take us to the top?

Colin Earl

00:19>> Sure.

Nathan Latka

00:20So you first have to tell people, does that mean? What does contract lifecycle management mean?

Colin Earl

00:25>> It just refers to the creation and management of contracts, typically contracts between B2B organizations. To kind of set the stage for this, negotiating and agreeing upon one of these contracts can well cost well in excess of $100,000 in attorney fees. So it's not a small issue. Of course, the entirety of business is focused around contracts and those define the relationships between the companies.

Customer Base and Market Segments

Nathan Latka

00:56Now, is fun for me, because the last time you came on was back in 2017. So, you're one of my first interviews. We're now almost 3,000 interviews in and the world has changed significantly since when we last spoke. So, let's get through the updated story here. What kinds of customers are paying you for your contract lifecycle management software?

Colin Earl

01:14>> Organizations from the very largest enterprises down to a few SMB companies. There's a list of customers at our website that includes the likes of CDW, Chevron, right down to startups.

Pricing Range and Upsell Drivers

Nathan Latka

01:33So Colin, you're going to hate this as an engineer, but if I forced you into an average, what would you say the average customer is paying you per month?

Colin Earl

01:40>> We don't disclose that information, but is,

01:48>> let's say it's significant, ranges from 1,000,000 plus at the high end down to a few thousand at the low end.

Nathan Latka

01:59So someone can get started on you guys for as little as, you know, 1,000, 2,000 a month. Yeah. And for someone that's paying, one thing I want to understand is what's the difference between someone paying you $2,000 a month versus someone paying $100,000 a month? What are you upselling guys? Is it number of contracts, number of seats, something else?

Colin Earl

02:14>> It's primarily the number of seats. There's also different versions of the software. For example, the higher end customers will typically use the API. They may be using 24/7 support services, etcetera.

Nathan Latka

02:28Are those the main two though? It's support services and API frequency?

Colin Earl

02:32>> Support services, API frequency, and of course the number of users.

Nathan Latka

02:36Yep, That all makes sense. Okay, great. Now this is what you call sort of the slow growth story, but still a great story. This is something where you went and raised a bunch of capital and exploded overnight. Launched this, I believe in 1991, correct?

Colin Earl

02:49>> That's right, yeah.

Nathan Latka

02:50So been going and pretty capital efficient, I think. How much have you raised to date? We

Bootstrapping and the FTV Capital Round

Colin Earl

02:56>> had a round of funding from FTV about a year ago. Until then, we had no funding at all, had grown purely through bootstrapping and actually achieved number one ranking in the Gartner Magic Quadrant, at least in the critical enterprise capabilities report, without having a penny of funding purely through bootstrapping.

Nathan Latka

03:23Now, how many customers are you serving today? Think in 2017, said you're working with about a thousand.

Colin Earl

03:28>> Yeah. The number is a partial listing is available on our website. There's about 500 companies listed at the site. A number of organizations ask that we don't disclose their names or Colin,

Nathan Latka

03:43I'm not asking you to disclose the list of your customers. I'm just trying to understand number of customers, right? This signifies if you're moving up market or moving down market based off the number at the top of your funnel. So how many total customers are paying at least a dollar?

Revenue Growth: 50% in 2021, 40% in 2020

Colin Earl

03:56>> I won't answer that directly, but I will say that growth over the past year in terms of new sales has been more than 50% and the prior year was about 40%.

Nathan Latka

04:09Okay. Now, when you say year over year 50 growth in new sales, do you consider upselling a current customer a new sale?

Colin Earl

04:16>> Yeah. So it's actually it's more growth in revenue, should say.

Nathan Latka

04:21Yeah, got it. So you may not be adding a bunch of new customers, but if you're expanding wallet share across the current base, can still get great revenue growth.

Colin Earl

04:28>> Yeah. And of course we are adding a lot of new logos, but we're also getting a lot of demand from the existing customer base.

Nathan Latka

04:36I mean, the general thesis, when HubSpot went public, they made a very intentional thing to say, guys, to the analysts, our average ARPU is going decrease, we're going open top of funnel. We want a wider net, we'll drive ARPU expansion over time. It's a very intentional decision. How are you guys thinking about customer growth over time? Are you happy with just maximum 2,000 customers and driving wallet share and ARPUs up? Or will you ever really open

04:58top of funnel and have a self-service $100 a month tool?

Colin Earl

05:02>> We don't anticipate having a $100 self-service tool. And the reason for this is that Agiloft was really designed to meet the needs of sizable enterprises. Organizations with complex requirements, complex workflows, demanding loads, etcetera. And

05:24>> that level of sophistication necessitates a certain level of sophistication in the product itself. It just isn't a great fit for the extreme low end.

Nathan Latka

05:41That makes sense. What does the sales motion then look like today? Do you have a bunch of account executives calling into new accounts or are you mainly more heavy on CSM, customer success reps that are just driving expansion in the current base?

Colin Earl

05:52>> It's not so much salespeople calling into new accounts, but new potential clients coming to us, registering at the website and then getting a follow-up call from a product specialist or a sales specialist.

Nathan Latka

06:08So how many people total are on the team today?

Colin Earl

06:11>> We don't disclose those numbers, as you can see from the LinkedIn profile in excess of 200.

Nathan Latka

06:20Okay, got it. So over 200 and how many of those folks would you consider engineering, in house engineers?

Colin Earl

06:27>> About a quarter.

Nathan Latka

06:28Okay. So pretty heavy then, at least 50 there are engineers. And then are there any like functions you've decided to outsource because you feel like it was more effective for the business?

Colin Earl

06:38>> Not so much functions, I mean, it's the number of services that we outsource. We don't run our own mail server, for example, we use the hosted version of Microsoft Exchange. We use AWS for hosting abroad. We offer hosting on AWS in Virginia as well. So whenever you can use, and this is I think a general rule, when there's a commoditized product out there that's best of breed and backed by a significant organization like Amazon or Microsoft,

07:13>> you're almost always better using that than developing your own.

Nathan Latka

07:17Going back, Colin, to the back story, it's rare you see a founder stay committed for almost thirty years. So applause to you to one startup here, but do you remember, can you take us back? Do you remember the year you passed a million dollar run rate?

Colin Earl

07:31>> Yeah.

Nathan Latka

07:33What year was that?

Milestone: $1M Revenue Around 2001

Colin Earl

07:35>> It was back in 'eighty, I think it was 'eighty nine. You didn't know Sorry,

07:44>> was not 'eighty nine,

07:49>> 2000, 2001, it quite a while. And the reason for this is that if you bootstrap an organisation, you have to develop some working capital. And we develop that by providing consultancy services. We then use that money to fund development of our first product, and then use the money from that product to fund development of the Agiloft suite today. So it takes a while. And if I had to do it again, maybe I'd raise capital at

Employee Equity and Option Pool Strategy

Nathan Latka

08:25>> the beginning.

08:25Now, are you the sole founder or how many founders are there?

Colin Earl

08:29>> I'm the sole founder.

Nathan Latka

08:31You are the sole founder. Okay. So you kept 100% equity all the way up through the beginning of, I guess, 2019, 2020.

Colin Earl

08:36>> Oh, no. The equity was shared with the employees and I think it's part of the Agiloft culture that every employee gets some piece of equity. When we had the investment from FTV, millions of dollars went to existing employees as well as of course, a fair chunk to myself.

Nathan Latka

08:57Yep. Before we get to the FTV stuff, because I do know that was obviously a big decision you made in the life cycle of the business. There's a lot of bootstrap founders that listen to this show. One of the things they struggle with is when to set up that employee stock option pool, or should they just stick with dividends, right? And use free cash at the end of the year to incentivize them. How did you make

09:14that decision when to set up and incentivize employees with equity?

Colin Earl

09:17>> Pretty much right from the beginning.

09:23>> One of the core tenants of Agiloft is to align the self interest of the company, the employees and the customers. One of the ways that you align the self interest of the company and the employees is by giving them a piece of it.

Nathan Latka

09:39Again, there's people listening here, they want to learn from you, right? What percent did you decide on day one to reserve for employee option pool?

Colin Earl

09:48>> Roundabout 10%.

Nathan Latka

09:50And looking back, would you do the same thing again? Would you make it bigger or smaller?

Colin Earl

09:55>> I think we'd do the same thing again.

Nathan Latka

09:57Okay, got it. So then over time, really all the way up, twenty, thirty years later, basically, you own call it 80 to 90%. You use the option pool to incentivize key employees for another 10%. That was until FTV was really the first, we'll call it outsider on your cap table then, is that right?

Colin Earl

10:13>> Well, the initial option pool was about 10%. We expanded that option pool as the company grew.

Nathan Latka

10:19So walk me through that process. Why'd you have to expect? Did you just find yourself, you deployed the full 10% and there was still great talent you wanted to acquire, you need to add Exactly.

Colin Earl

10:26>> More?

Nathan Latka

10:27So how'd you think about expanding? Can you share sort of do you double it or triple it or what?

Colin Earl

10:32>> Well, what do you do is you look at what will it take to make the company really attractive to a potential employee? How many such folks do we anticipate hiring on before we get to the next level of revenue? If you're giving somebody say 0.1% of the company or 0.5% of the company, that's very different if the company is at a revenue

11:04>> of say $10,000,000 a year as opposed to $1,000,000 a year. So

11:11>> the size of the pool is dependent upon both the number of employees you're looking to hire and the level of seniority and the size of the company at the time that you hire them.

11:24>> And yeah, we more than doubled the equity pool.

The FTV Deal: Secondary vs. Primary

Nathan Latka

11:29And then you obviously made capital decisions in 2020 with bringing FTV in. Can I ask how much equity you still own today?

Colin Earl

11:36>> I'm still the largest shareholder.

Nathan Latka

11:40Good answer. All right. So you still own more than 50%. Why did you make that decision? Why not sell a majority at FTV? Why did you want to keep more than 50%?

Colin Earl

11:49>> Well, I didn't keep, to be clear, I didn't keep more than 50% of the stock. I'm the largest shareholder.

Nathan Latka

11:54Oh, see.

Colin Earl

11:55>> Got it. But there are other shareholders as employees as FTV, etcetera. And we bought in FTV because we felt it was time to accelerate the growth of the organization. CLM is an extraordinary and rapidly developing and evolving market. And it's nice to take some cookies off the table.

Nathan Latka

12:16How much of the 45,000,000 was secondary?

Colin Earl

12:21>> Enough that I don't have to worry about money.

Nathan Latka

12:25That's more dependent on expenses than how much they take in secondary. Keep your expenses, can live on nothing.

Colin Earl

12:32>> Yeah. I don't have expensive tastes, but it was nice to buy a nice house. I'm delighted to say I now live in the house that was previously owned by the inventor of LDAP.

Nathan Latka

12:48Oh, wow. Very cool.

Colin Earl

12:50>> Very, very cool.

Nathan Latka

12:51That's incredible. Can I push you a little harder? Was more than 50% of the 45,000,000 secondary or less?

Colin Earl

12:58>> I don't want to get into those details.

Nathan Latka

13:02It's something that I've received.

Colin Earl

13:03>> What I'll say is this, the goal wasn't that I become wealthy. I'd simply wanted a ton of money, then I'd have sold the company. The goal was that I get enough money that the company can afford to expand rapidly and aggressively without my worrying about it. So it gave us freedom to grow the sales organization, to grow and expand the marketing organization.

Nathan Latka

13:34Well, Colin, if that was the only focus, none of it would have been secondary, right? Took part secondary because you deserve to take part secondary. You work hard for twenty years, you bootstrap a business, it makes sense. The reason I push you on the question is because there's lot of founders listening today that have bootstrapped to 5 or 10,000,000, and they're being approached by growth equity firms and trying to figure out how to negotiate what percent

13:52they should ask for secondary versus keeping in the business.

Colin Earl

13:55>> Right. And what I'd say is this, is that if you want to grow a company rapidly as Salesforce did, it's one of the classic examples, you have to be willing to go into the red because growth is expensive. It is almost impossible to double revenue year over year

14:16>> without going into the red from a gap perspective. And that's at least for me, a very uncomfortable thing to do. And

14:27>> at a certain point, you're going to run into cash flow issues. To do that, you need to pull in investment capital, you need to build the balance sheet, but if you want to be comfortable doing it, you also need to pull in enough secondary so that your retirement is taken care of. And that is how I think about it or thought about it and how I recommend others think about it as well.

Path to $50M Run Rate

Nathan Latka

14:53That's really helpful. Thanks for that. Rounding this out, obviously you now have additional capital on the balance sheet to drive additional growth. Do you see a clear path to breaking a $50,000,000 run rate in the next twelve to twenty four months?

Colin Earl

15:07>> Is certainly our goal, yes.

Nathan Latka

15:09Does it feel reasonable or does it make you a little uncomfortable? It feels like a stretch goal.

Colin Earl

15:13>> I think it's reasonable.

Nathan Latka

15:15Okay. Very cool. Yeah. The reason I ask 50,000,000 instead of something else is I take your more than a thousand customers today at around a $2,000 ARPU puts you at 3,000,000 a month and annualized, it's about 36,000,000. If you keep growing at 50% to 60% year over year, that gets to that 50,000,000 here fairly rapidly.

Colin Earl

15:31>> Right. Well, of the things that happens is when you get to a certain point, you become well known in the market. We achieved that with both the number of customers and the Gartner Magic Quadrant. And then it begins to build on itself pretty rapidly. Getting to that point is a lot tougher than exploiting

Nathan Latka

15:54it for Colin, I appreciate you sharing this, but it took you ten years to get to that million dollar run rate, believe, correct?

Colin Earl

16:00>> Yeah, thereabouts.

Nathan Latka

16:01Right? So that's the grind. That's what it's all about is the grind. Can I ask you how long it took you to get to 10,000,000 run rate?

Colin Earl

16:14>> I was going to say less than half that time, but yeah, right So about that.

Nathan Latka

16:18Roundabout, that would have been like 2015 ish.

Colin Earl

16:21>> Yeah.

16:24>> I'd say, the other factor of course was that we transitioned from being a consulting organization to a product organization. Thirty:fifty

Nathan Latka

16:35And as a product organization, you can grow so much faster. Yep. Weren't you able I mean, so call it 10,000,000 in 2015, and now you're around like thirty or forty million. Million. Why weren't you able to like grow faster in that period? Did you just sort of hit a roadblock where you needed to bring in external capital to take some other experiments, some other tests?

Pivot to CLM and Growth Acceleration

Colin Earl

16:52>> Agiloft was focused on the platform because it's a no code platform. It allows you to build any enterprise application. And one of the first applications we focused on was service desk support, which is a large market, but heavily saturated.

17:17>> It's much, much harder to grow in that market than a relatively greenfield market like CLM. It was when we made the transition to focus on CLM, to put core development expertise into building the CLM platform, that growth really began to accelerate.

Net Dollar Retention Above 100%

Nathan Latka

17:34And now today with the additional capital and the expansion revenue you're seeing, is your net dollar retention above 100%?

Colin Earl

17:41>> Yes.

Nathan Latka

17:42Do you have a goal there or is that not important?

Colin Earl

17:45>> Well, our goal is simply to make it as high as possible, but getting it above 100% is a comfortable place to be.

Nathan Latka

17:56It's been above 100% for a number of years now. Can you get up to 120, 130%, which would be world class compared to publicly traded SaaS companies? Gavin

Colin Earl

18:11>> I think so, but it all depends upon the level of saturation you get with the initial sale. In some instances, people begin with a relatively small deployment for maybe one division of a multinational company and then they grow from there. Of course you get extraordinary multiples if that's what happens. If however you begin with an enterprise deployment across the entire organization, you're only going to get incremental growth as the parent organization grows.

Adjacent Products: Matter and Case Management

Nathan Latka

18:48Unless you develop new product lines to sell into different functional roles at that logo.

Colin Earl

18:52>> It does so. And that's one of the things which is happening is that people having seen success with Agiloft for CLM are then looking to expand it for matter management, case management, etcetera.

Nathan Latka

19:06Are you building any new product lines outside of CLM?

Colin Earl

19:10>> We're building adjacent applications to CLM. Yep. Matter management, case management are good examples, closely tied to CLM. They're processes which involve contracts that involve negotiation and discussing between sites, but they're not going to be CLM itself.

Nathan Latka

19:33Evaluation is obviously a sensitive topic. I won't ask you what the valuation was when you worked with FTV, you probably can't answer that, but can I ask you in terms of the multiple against your AR, was it more or less than a 10X multiple?

Valuation Multiple Discussion

Colin Earl

19:44>> It was more than a 10X multiple.

Nathan Latka

19:46Okay, got it. More than 20x multiple?

Colin Earl

19:50>> Let's talk, unfortunately not, but maybe it should have been.

Famous Five Rapid Fire

Nathan Latka

19:55Fair, fair, fair. Okay, so between 10 and 20x multiple, that's helpful. Let's wrap up Colin with the famous five. Number one, what's your favorite business book?

Colin Earl

20:03>> The Tipping Point. Isn't strictly a business book,

20:08>> but it's extraordinarily helpful.

Nathan Latka

20:09Number two, is there a CEO you're following or studying?

Colin Earl

20:13>> Yeah, Reed Hastings, extraordinary guy.

Nathan Latka

20:16Number three, what's your favorite online tool for building Agiloft?

Colin Earl

20:22>> I don't really have an online tool for building Agiloft and it's developers.

Nathan Latka

20:30Yeah, number four, how many hours of sleep do you get every night?

Colin Earl

20:33>> Eight.

Nathan Latka

20:34Okay, situation Colin, married, single kids?

Colin Earl

20:37>> Very happily married, one kid.

Nathan Latka

20:39One kid, okay, and how old are you?

Colin Earl

20:45>> Old enough to have gray hair.

Nathan Latka

20:47I have gray hairs coming in now and I'm only 31.

Colin Earl

20:50>> Not as many of them, look at me.

Nathan Latka

20:52All right. Take us home then, those something you wish you knew when you were 20. I

Advice: Reject Conventional Wisdom

Colin Earl

21:01>> think what I wish I'd known is that you really have to be, if you want to make a difference in the world, you have to be willing to reject the conventional wisdom. You also have to be willing to look at the conventional wisdom and see where you can learn from it. Because there's an entire history of learning background, which has gone into that. But if you simply accept what people are telling you as being the gospel

21:30>> truth, you're never going to be more than a wage worker.

Nathan Latka

21:35Guys, thirty year old overnight success story, Agiloft took them ten years to bootstrap up to a million bucks in revenues. They transitioned from an agency to a product company, broke $10,000,000 in terms of run rate in 2015. Now they have over 1,500 customers they are serving in the contract lifecycle management space with their team of 200. He decided last year in 2020 to go ahead and raise 45,000,000 from a private equity firm, FTV. A portion

21:58of that went to incentivize and celebrate the early employees who took equity early on and obviously a portion also went to Colin, but now they're doubling down on growth, growing, call it 40% to 60% year over year with plans to break that magical $50,000,000 run rate here in the next twelve to twenty four months. Colin, thanks so much for taking us to the top.

Colin Earl

22:15>> Thank you, Nathan.

Nathan Latka

22:17One more thing before you go. We have a brand new show every Thursday at 1PM Central. It's called Shark Tank for SaaS. We call it deal or bust. One founder comes on three hungry buyers. They try and do a deal live and the founder shares back end dashboards, their expenses, their revenue, ARPU CAC, LTV, you name it, they share it and the buyers try and make a deal live. It is fun to watch every Thursday 1PM

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